The risk of losses isn’t going anywhere, and will likely increase, according to a recent PwC report, “Broking 2020: Leading from the front in a new era of risk.” Protecting against a new breed of emerging risks will require coordination across corporations, insurance companies and policy makers. As the traditional intermediary in the risk transfer chain, brokers are positioned to identify and develop innovating solutions.
While brokers have some of the required capabilities and investments are underway to bridge this ever-widening gap, significant changes to operating models must be addressed in order to meet future demands. According to PwC, the question moving into the future remains: Can brokers respond quickly enough to keep pace with the rapid shifts in the marketplace and risk environment?
“Companies and their insurers have to keep pace with a global risk landscape that is evolving more rapidly now than at any time in recent history,” says Richard Mayock, global insurance broking leader with PwC (US).
According to the PwC survey, “Clients are essentially asking for three things: What risk can you help me to understand better, how can you help me to grow my business, and how can you help me transfer risk through traditional or capital market means at a price I can accept,” says Dominic Christian, executive chairman of Aon Benfield International. “There are few brokers who have the scale, licenses and analytical capabilities to answer all three of these questions.”
Furthermore, many small brokerage firms may lack the scale to develop advanced capabilities in house, so it is important for them to find ways to pool resources or access market-wide information services. The survey reveals that risk analysis is the No. 1 way in which a brokerage firm, of any size, can assist clients on a more efficient basis.
Brokers have the ability to help their clients respond to these emerging and strategically critical risks, but on the flip side, failure to provide insightful advice could call relationships and capabilities into question. While there are great opportunities on which brokers could capitalize, they also come with large risks, should the broker fail to deliver. While two-thirds of risk managers who responded to the PwC survey see brokers as “trusted advisors,” reliance only on past relationships to carry the industry forward is not an effective strategy.
“Brokers are forced to move beyond their traditional role of facilitating basic risk placement decisions into providing creative and timely solutions that are anchored in deep analytical insights,” Mayock says. “Given the strategic nature of the demands now being placed on brokers, it is those that have a global presence that mirrors their clients’ footprints and invest in the necessary technology to strengthen their in-house analysis and solution development capabilities that will establish a sustainable competitive advantage.”
Overall, survey participants see service capabilities and the ability to complete the program as the most important capabilities, even more important than price, in choosing a broker. But brokers should also focus on developing strong relationships with their clients for the purpose of retention, and further, provide them with the knowledge clients require to successfully navigate the new risk landscape, driven by social, technological, economical, political and environmental forces.
“While brokers are generally seen as ‘trusted advisors’ especially in the realm of traditional risk management, when it comes to increasingly complex and constantly shifting ‘non-standard’ risks, risk managers are looking for ‘consultative partners.’ Their expectations are that brokers will rapidly innovate and make investments in strong predictive analytics that drive development of highly tailored and relevant solutions,” Mayock says.
The PwC report notes the importance of using dynamic analytics to help businesses anticipate and understand the risks they may face, and furthermore, develop informed decisions in addressing them. Brokers are in an ideal position to evolve into global risk facilitation leaders. They can identify and develop innovative solutions that can help clients address the changing risk environment.
“One example of how this might play out is in the area of cyber risk. Cyber insurance is one of the fastest growing commercial product lines. The brokerage community is well-positioned to facilitate the management of the entire cyber risk process, to better anticipate and understand emerging cyber risks through the collection, integration, analysis and communication of actionable insights—shifting into more of a ‘consultative’ role,” Mayock says.
“The brokerage industry is recognizing that success will be achieved by aligning investment in technology with overall business strategy,” he continues. “The improvement of technology in the broker industry will become a major factor distinguishing superior from mediocre performance. Companies that invest in and help their customers exploit the benefits of emerging technologies will achieve superior results.”